The US Customs and Border Protection (CBP) has increased scrutiny on cotton products coming from China due to concerns around forced labor in the Xinjiang Uygur Autonomous Region of China (XUAR).
On December 2, 2020, the CBP issued a detention order on cotton products made by Xinjiang Production and Construction Corps (XPCC), due to the use of forced labor and prison labor. This was soon followed by a region wide Withhold Release Order (WRO) on products made by slave labor in the XUAR on January 13, 2021. In particular, the WRO applies to “cotton products and tomato products produced in Xinjiang based on information that reasonably indicates the use of detainee or prison labor and situations of forced labor.”
What does this mean?
Ultimately, shipments of cotton and tomato products, including “apparel, textiles, tomato seeds, canned tomatoes, tomato sauce, and other goods made with cotton and tomatoes,” are subject to WRO action, including detention, at the discretion of the Port Authorities. Importers of such products must ensure that their goods do not involve forced labor at any point in the supply chain, “including the production or harvesting of the raw material.”
This has a massive impact on any company that using affected materials from China, especially cotton. China accounts for 20 percent of all the cotton in the world, and Xinjiang cotton accounts for 80 percent of China’s cotton. Overall, this represents 50 percent of global spinning capacity.
Importers of cotton and tomato products must ensure that their goods do not involve forced labor at any point in the supply chain
If an importer’s shipment is detained by CBP, they must provide evidence that their products do not involve the use of forced labor, at any point in the supply chain, in order for the shipment to be admitted into the United States. The burden of “proof of admissibility” lies with the importer.
What businesses need to do
The CBP has recently issued guidelines on what constitutes sufficient proof of admissibility. Some examples include:
- Supply chain traceability documents pointing to raw material point of origin
- Affidavits from yarn producer and the source of raw cotton that identifies where the raw cotton was sourced
- Production records for the yarn, including records that identify the cotton and cotton producer of the raw cotton
It is critical for companies to act now. Apparel industry groups such as the American Apparel & Footwear Association and the Retail Industry Leaders Association, as well as numerous trade experts, promote transparency as a way to meet CBP requirements.
- “To remove the risk of forced labor, importers should apply due diligence in establishing reliable procedures and regularly examining and monitoring manufacturers and suppliers.” – Hall Booth Smith, P.C.
- “As the same transaction may present several Xinjiang-related risks, it is critical that companies take a holistic (rather than siloed) approach in identifying, assessing, and mitigating these risks.” – Baker McKenzie)
What this all means is that full-scale, multi-tier supply chain mapping is foundational for sensitive raw materials.
How Transparency-One can help
Transparency-One can help businesses achieve the degree of transparency needed to respond to the CBP Withhold Release Order. The Transparency-One solution enables companies to discover and connect with their suppliers at all levels of the supply chain and request, share, and exchange information. Multi-tier transparency down to the raw material is crucial to provide adequate proof of admissibility.
However, achieving this degree of visibility for every purchase order, for every tier, is heavy and typically requires system integration. This takes time and resources and, for many businesses, can be a nonstarter. Rather, to respond quickly and effectively to the CBP order we recommend a targeted approach that focuses on a smaller scope of impacted items, such as the next season’s floor set.
Train suppliers to respond to requirements specific to the CBP order within a certain timeframe, and set the expectation for greater visibility, connectivity, and communication
Companies can focus on achieving “operational transparency” with their Tier 1 and possibly Tier 2 suppliers, where transparency becomes a part of day-to-day operations. This involves training suppliers to respond to requirements specific to the CBP order within a certain timeframe, and more generally setting the expectation for greater visibility, connectivity, and communication. The Transparency-One platform also provides the flexibility needed to allow companies to adapt to CBP requirements both now and as they continue to evolve.
With operational transparency, companies achieve the ability to communicate requirements with their extended supply chain and receive a timely response. This collaborative effort not only helps ensure an effective response to the CBP Withhold Release Order, but also puts businesses in a strong position to meet market demands for greater supply chain transparency and responsible sourcing.